Friday, September 30, 2011

Dr. Robert Shiller, Yale economics professor and co-founder of the Case-Shiller Home Price Index, was interviewed by Aaron Task and Henry Blodget on Daily Ticker on 9/27/2011. He is still "worried" that stock valuations could overshoot to the downside. I embedded the video after the jump.

What do you think? When looking at Shiller's CAPE (cyclically-adjusted P/E ratio), is it time for the stock market to trade under its long-term average P/E multiple and overshoot like it did in the 1920s, 1930s and 1980s? Or will it happen in another decade? Shiller has data available to the public online going back to 1881. You can chart out the S&P 500, dividend, earnings, consumer price index, long-term interest rate and more in excel format. Below is an interactive chart of the cyclically-adjusted P/E ratio going back to 1881 in log scale. For more on this topic, see Shiller's recent interview on Fox Business and read John Hussman's recent note on the possibility of secular undervaluation (and where the market could trade).

Wednesday, September 28, 2011

Robert Shiller, Yale economist and co-founder of the Case-Shiller Home Price Index and MacroMarkets, told Fox Business on 9/21/2011 that he thinks real home prices (inflation adjusted) could overshoot to the downside. But more importantly, since stock portfolios are 15.3% of household net worth as of Q2 2011 (which doesn't include mutual fund shares, see Fed data or the snapshot below), Shiller is worried that the stock market could be in a bubble.

If you've been following Shiller's historical stock market data, you can see that the S&P cyclically adjusted price/earnings ratio (average inflation-adjusted earnings over the past 10 years) is currently around the upper end of the 130 year range (since 1881). Multpl.com has charts available from Shiller's data sets. So, will stock valuations overshoot to the downside like housing? He was also asked about gold. Watch the video after the jump.

Monday, September 26, 2011

In doom and gloom news, this BBC video clip went viral today. In a somewhat convincing way, Alessio Rastani, an independent trader who runs leadingtrader.com, told BBC that he thinks the euro zone rescue plan will fail, the euro and big stock markets will crash, and "in less than 12 months, savings for millions of people is going to vanish." Why? Because governments don't rule the world, Goldman Sachs rules the world, and Goldman Sachs does not care about this rescue package. Whoa...

On 9/21/2011, billionaire George Soros, founder of the Quantum Fund and Soros Fund Management, shared his views on the euro zone crisis and U.S. economy with Maria Bartiromo on CNBC. He thinks the U.S. is already in a double dip recession and "two or three of the small countries" in Europe could default.

Soros: "I think that you could have two or three of the small countries default or leave the euro provided it is prepared and done in an orderly way."

Bartiromo: "Is what's happening right now in the U.S. and Europe worse than the Lehman Brothers fallout?" Soros: "It is a more dangerous situation, and i think that the authorities, when push comes to shove, will do whatever it takes to hold the system together."

Bartiromo: "Do you think we'll see a double dip here in the U.S.?" Soros: "I think we are in it already." (video and transcript source: CNBC)

FYI: Over the weekend, The Telegraph broke news that a €2 trillion fund is being planned "to meet Italy and Spain’s financing needs in the event that the two countries were shut out of the markets. Officials are working on a way to leverage the EFSF (€440 billion rescue package) through the European Central Bank to reach the target."

In an interview with Bloomberg's Erik Schatzker, Ray Dalio, founder of the $122 billion hedge fund Bridgewater Associates LP, explains how his macro fund made 25% this year using diversified uncorrelated bets, and how the "machine" works.

Thursday, September 22, 2011

The December E-mini S&P future is down 2.83% right now at 1,123 pre-open. It is clearly in the next wave down and needs to desperately find a support level. The 8/9/2011 low was 1,077. You can see the downtrend line that ES needs to break for a bullish reversal (and 1,217 retest). Is 1,000-1,100 in the cards? Not sure what's up, but proceed at your own risk!

Jim Chanos, founder of hedge fund Kynikos Associates, told Bloomberg's Carol Massar yesterday that he's still very bearish on China's property market and banking sector. He's been bearish on China for a few years now and now it's starting to move his way. The question now is, does China see a soft or hard landing? Chinese equity indices are breaking down as we speak and China's 5Y CDS (credit default swap) just made a new high. More on that in my next post. Here are a few (unofficial) quotes from the video (w/ links to related posts). Watch the Bloomberg video after the break.

Jim Chanos: "Well, the Chinese government balance sheet directly does not have a lot of debt, it's de minimis. But the fact of the matter is, the state owned enterprises and the local governments, and all the other ancillary borrowing vehicles, have lots of debt, and it's growing at a very very fast rate. And the assumption is, is the state stands behind all this debt. Well if we look at it on that basis, and Fitch and others have done so too, we see that debt in China, implicitly backed by the Chinese government, probably has gone up from somewhere about 100% of GDP to about 200% of GDP recently. And those are numbers that are staggering. Those are European kind of numbers, if not worse."

Below is Peter Schiff's testimony before the Congressional Committee of Oversight & Reform with Q&A (hat tip reboilroom). Also embedded is the transcript of his testimony. He runs Euro Pacific Capital and is a hardcore Austrian economist. If you remember, he was one of the ones on CNBC and FOX that warned viewers about the pending housing crash, evaporation of home equity and negative effects from artificially low interest rates (see videos 1, 2, 3). Now that we're experiencing the aftermath of his predictions and ongoing de-leveraging, there's no doubt these are tough decisions to make. Thoughts?

"How the Government Can Create Jobs

Testimony by Peter D. Schiff

Offer to the House Sub-Committee on Government Reform and Stimulus Oversight

September 13, 2011

Mr. Chairman, Mr. Ranking member, and all distinguished members of this panel. Thank you for inviting me here today to offer my opinions as to how the government can help the American economy to recover from the worst crisis in living memory.

Despite the understandable human tendency to help others, government spending cannot be a net creator of jobs. Indeed many efforts currently under consideration by the Administration and Congress will actively destroy jobs. These initiatives must stop. While it is easy to see how a deficit-financed government program can lead to the creation of a specific job, it is much harder to see how other jobs are destroyed by the diversion of capital and resources. It is also difficult to see how the bigger budget deficits sap the economy of vitality, destroying jobs in the process.

In a free market jobs are created by profit seeking businesses with access to capital. Unfortunately Government taxes and regulation diminishes profits, and deficit spending and artificially low interest rates inhibit capital formation. As a result unemployment remains high, and will likely continue to rise until policies are reversed." (continue reading below)

In today's FOMC statement, the Federal Reserve decided to "extend the average maturity of its holdings of securities" on its balance sheet, aka "operation twist", to "support a stronger economic recovery". With no additional asset purchases involved (QE3), the stock market and EUR/USD plunged, while Treasury bonds and the U.S. Dollar (safe havens) spiked. Also, the problems in Europe and the global economic slowdown provided additional support for that trade (imo). See the full FOMC statement after the jump.

"The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative."

New York, September 21, 2011 -- Moody's Investors Service has downgraded the ratings of Bank of America Corporation's (BAC) holding company to Baa1 from A2 for long-term senior debt and to Prime-2 from Prime-1 for short-term debt. The long-term deposit ratings of Bank of America N.A. (BANA) were downgraded to A2 from Aa3, while BANA's short-term rating was affirmed at Prime-1. The actions conclude a review for downgrade announced on June 2, 2011. The outlook on the long-term senior ratings remains negative.

EUR/USD and the Euro FX December Future are back where they were last night after Italy's downgrade. Ran Squawk just reported that Barclays sees EUR/USD at 1.33 in one month and 1.25 in 3 months. It is currently trading at 1.36741 and testing a steep downtrend line. If it can't break through the trend, it will probably retest the 9/12 low of around 1.35000. If that gets taken out, I don't see any support until 1.287, or the January 2011 lows.

The market is speculating on whether Greece defaults or gets its next tranche of bailout money from the IMF/EU, or establishes a fiscal union with euro bonds. If Greece or another country in the euro zone defaults, then the European banking system would be at risk of contagion. So what is going to happen? Are China and Brazil going to provide a backstop? I see Greece raised 1.65 billion euros in a 13-week Treasury bill auction yesterday. According to CMA Datavision's Sovereign Risk Monitor, Greece 5Y CDSs (at 5,639 basis points) have a default probability of 94% and Portugal 5Y CDSs (at 1,271 basis points) have a default probability of 63%. They are at the top of the list, then Ireland at 50%, Italy at 36% and Spain at 30%. See my link fest from a few hours ago for articles to read. See charts after the jump.

Tuesday, September 20, 2011

S&P downgraded Italy's credit rating to A from A+, read the full report at Zero Hedge: "Italy Unsolicited Ratings Lowered To 'A/A-1' On Weaker Growth Prospects, Uncertain Policy Environment; Outlook Negative".Initially the euro and equity index futures plunged, but after a few hours they rallied back to positive territory. The Fed meets today and tomorrow (correction), so markets could be positioning for the FOMC statement. Or perhaps the action is related to Greece. Either way, nice reversal; we'll see if it lasts. The December E-mini S&P Future (ESZ11) is at 1,200.25, up 0.23%; the December Comex Gold Future (GCZ11) is at 1,791, up 0.73%; and the December Euro Future (ECZ11) is at 1.3675, up 0.12%. Check out the chart comparing the S&P, euro and gold tonight.

Monday, September 19, 2011

Check out the demo video for Google Wallet. I would love to use this. For now, Google Wallet is only available on Sprint Nexus S 4G Android phones with Near Field Communication (NFC) technology, but will be available on other phones in the future. It looks like a great way to leverage Google Offers. At this time, Google Wallet only works with Citibank MasterCards with PayPass enabled merchants, or Google Prepaid Cards. This is the future. What about biometrics? Google Keys?

Moody's still sees a tough environment for states and municipalities. According to Moody's, the weak economy, real estate market and cuts in federal funding will continue to put pressure on states and local governments. Have any big local munis gone under? They are the most at risk given their limited taxing abilities and reliance on state funding. Jefferson County, Alabama has been in the news recently.

"Sept. 17 (Bloomberg) -- Jefferson County, Alabama, which approved a deal with holders of $3.14 billion of its sewer debt, now needs action by state lawmakers to end a more than three- year saga that kept it on the brink of filing the biggest municipal bankruptcy in U.S. history." (BusinessWeek)

Announcement: Moody's: Outlooks for U.S. states and local governments remain negative

Global Credit Research - 19 Sep 2011

"New York, September 19, 2011 -- Moody's Investors Service is maintaining negative outlooks for the U.S. states and local government sectors despite the fact that most issuers have demonstrated strong budgetary management in difficult times, given the dual challenges of a weakening economy and diminished support from the federal government.

On 9/14/2011, St. Joe Co. entered into a stockholder agreement with Fairholme Capital Management "permitting Fairholme to acquire beneficial ownership of up to 50% of the company's outstanding common stock" (see more below). This is up from 30% previously. The $12 billion Fairholme Fund ($FAIRX) already owns 28.86% of St. Joe Co. ($JOE) as of June 30, 2011.

In July, Bruce Berkowitz, founder and CIO of Fairholme, mentioned in a Bloomberg interview that he wanted to own more of the company if the price moved lower. His wish came true in August when equities crashed and JOE hit a low of $14.80, which is near the March 2009 low of $14.53. It closed at $18.20 on Friday, up 6.56%, after the filing hit. The stock hit a high of $30 in January on a nice short squeeze after David Einhorn's bearish report, and on speculation that some type of transaction would occur (at 3x book). But nothing happened, shares failed inside the judgment triangle, and now Berkowitz can average down on JOE cheaper for his long term thesis. Or position for a buyer? St. Joe Co. is Northwest Florida's largest private landowner with 575,000 acres and has valuable timberland assets.

I wonder if Whitney Tilson (T2 Partners) and David Einhorn (Greenlight Capital) are still short the stock. They valued the company between 7-$12 per share based on its timberland assets. The stock has been trending down since 2005, so it needs to break through that long term downtrend line for bullish confirmation. But, until then, JOE needs strength from Fairholme, other institutional investors, timberland prices and the housing market for it not to hit $12.90 (the 1999 low). The December S&P future is down 1.88% right now overnight.

Sunday, September 18, 2011

So it wasn't the Swiss Franc that caused Delta One trader Kweku Adoboli to lose $2.3 billion for UBS. $2.3 billion is a lot of dough to blow! Here is the UBS statement.

"Zurich/Basel, September 18, 2011, 04:00 PM

UBS provides more detailed information on unauthorized trading

On September 15, 2011 UBS announced that it had discovered unauthorized trading in its Investment Bank. This trading was conducted by a trader in its Global Synthetic Equity business in London. The trader in question has been charged by UK authorities with fraud by abuse of position.

Before making a further announcement, we needed to be certain that we understood the positions that were booked and that we knew the amount of our resulting loss.

We have now covered the risk resulting from the unauthorized trading, and the equities business is again operating normally within its previously defined risk limits. The loss arising from this matter is USD 2.3 billion. As previously stated, no client positions were affected.

The loss resulted from unauthorized speculative trading in various S&P 500, DAX, and EuroStoxx index futures over the last three months. The positions taken were within the normal business flow of a large global equity trading house as part of a properly hedged portfolio. However, the true magnitude of the risk exposure was distorted because the positions had been offset in our systems with fictitious, forward-settling, cash ETF positions, allegedly executed by the trader. These fictitious trades concealed the fact that the index futures trades violated UBS's risk limits.

Following inquiries directed to him by UBS control functions that were reviewing his positions, the trader revealed his unauthorized activity on September 14, 2011.

UBS's Board of Directors has set up a special committee to conduct an independent investigation of the unauthorized trading activities and their relation to the control environment. The committee will be chaired by David Sidwell, the Senior Independent Director, and will report to the Board of Directors. The other members of the committee are Ann Godbehere and Joseph Yam.

This excerpt from the special video issue of the August Elliott Wave Theorist brings you Bob Prechter’s analysis of the triple top that has been forming in the U.S. stock market over the past 12 years. Watch as Bob himself explains what this pattern means for you and the markets.

Learn more about using Momentum analysis to make Elliott wave trading decisions in this video by EWI European Interest Rate Analyst Bill Fox. Find more lessons on technical indicators in EWI's newest free report. See the information below.

Here's a fun fact. According to the Bank for International Settlements, at the end of 2010 the total notional amount of over-the-counter (OTC) derivatives outstanding stood at $601 trillion! The gross market value stood at at 21.1 trillion.

"The notional amount (or notional principal amount or notional value) on a financial instrument is the nominal or face amount that is used to calculate payments made on that instrument. This amount generally does not change hands and is thus referred to as notional." (wikipedia)

Thursday, September 15, 2011

UBS has discovered a loss due to unauthorized trading by a trader in its Investment Bank. The matter is still being investigated, but UBS's current estimate of the loss on the trades is in the range of USD 2 billion. It is possible that this could lead UBS to report a loss for the third quarter of 2011. No client positions were affected."

"The Financial Services Authority (FSA) has fined UBS £8 million ($13.2 million) for weak controls that allowed staff in its private bank to make thousands of unauthorised trades with clients’ money and then hide the losses. It is the third-largest fine awarded by the FSA." (timesonline.co.uk)

*Update: UBSN closed down 10.75% at 9.75. Kweku Adoboli, of UBS's Delta One division, which trades and makes markets in "synthetic assets" and derivatives for clients, has been arrested. Mis-hedging against Swiss franc exposure and volatility could have been responsible for the $2 billion loss, according to eFinancialNews. The Swiss National Bank recently pegged EUR/CHF at 1.20 to halt runaway appreciation in the Swiss Franc during the Eurozone crisis.

"Several market participants told Financial News this morning that Adoboli may have mis-hedged his exposure to the Swiss franc and attempted to hide it from his team when the market moved against him by overcompensating with a hedge in the opposite direction. Any short position on Swiss franc volatility would have suffered after volatilities rose again earlier this week." (continue reading at efinancialnews)

"Many Delta One desks also specialise in providing swap execution services to so-called synthetic ETFs, meaning they provide the over-the-counter derivative which allows the ETF to track its underlying asset. “Delta One desks are essentially huge trading counterparties which means they take on a lot of risk for a huge amount of business,”" (continue reading at FT.com)

Robert Zoellick, President of the World Bank Group, delivered a speech yesterday ("Beyond Aid") at George Washington University and appeared on CNBC's Kudlow & Company, see below.

"The global economy has entered a new danger zone with little running room as European countries resist difficult truths about the common responsibilities of a common currency. Japan has resisted structural economic and social reforms that could retool its sputtering economic model. The United States is facing record peacetime deficits, with no agreed approach in sight for cutting the drivers of debt. The lesson of 2008 and earlier crises is that the later you act, the more you have to do, and the more painful it becomes. It is not responsible for the Eurozone to pledge fealty to a monetary union without facing up to either a fiscal union that would make monetary union workable or accepting the consequences for uncompetitive, debt-burdened members. It is not responsible for the United States to falter in facing fundamental issues such as unsustainable growth in entitlement spending, the need for a pro-growth tax system, and a stalled trade policy. Unless Europe, Japan, and the United States can also face up to responsibilities they will drag down not only themselves but the global economy." [continue reading]

According to CMA's Sovereign Risk Monitor (see it free), Greece has the highest default probability percentage at 97.64%. Greece's 5Y credit default swap mid spread is at 7318.25, with Portugal right behind it at 1308.51 (default probability 63.75%). You can see Ireland, Italy and Spain are further down the list. Membership in the highest default probability club hasn't changed much since June 2010 (minus Dubai, Iraq, Illinois and California), but spreads and the CPD% have increased substantially for the PIIGS.

Fed Watch: Ben Bernanke, Chairman of the Federal Reserve, gave his outlook for U.S. economic growth, inflation and monetary policy during a speech at the Economic Club of Minnesota on 9/8/2011. I quoted the portion on monetary policy and provided an excerpt from the FOMC Minutes on 8/9/2011 (released 8/30/2011), which discussed additional tools the Fed could use to "promote a stronger economic recovery in a context of price stability."

Some Fed participants believe "providing additional stimulus at this time would risk boosting inflation without providing a significant gain in output or employment." The next Federal Open Market Committee meeting is on September 21-22. Also read the transcript of Ben Bernanke's Jackson Hole Speech, which was delivered on 8/26/2011. What are the odds of QE3?

EUR/USD is still selling off pretty hard. See the linkfest in my previous post for news on Greece and European banks. I'm not sure where support is for the pair, but it's starting to price in an important catalyst ahead. Hopefully it is clean.

Saturday, September 10, 2011

Greece's five year credit default swap spiked to 3,399 basis points today, up 20.37%. The detailed quote on Bloomberg.com today showed the contract hitting a high of 3,623 basis points. In other words, the cost to insure 5-year Greek government bonds rose to 33.99% per year, or $3,399,000 to insure $10 million of Greek five year bonds. Judgment day is near. Will selling off (or collateralizing) state assets prevent a default? Links: "Greece says to speed up privatisation plan" (AFP, 9/7), "Greek state assets seen as collateral for new bailout" (EurActiv, 8/26). GGB yields are very high as well.

Friday, September 9, 2011

Unless China steps in here, EUR/USD looks broken to me, at least for a while. It broke the uptrend line from June 2010, so it needs an injection from somewhere to get back on path. You can see the nasty sell off that occurred recently in the first chart and the near-term downtrend line to break for a relief rally. It could roll on down to test support in the descending channel. On BNN yesterday, Ashraf Laidi, of Intermarket Strategy, had interesting views on the Euro.

"Only a very aggressive QE from the U.S. will do the trick for the Euro. Meaning, only something so aggressive easing policy of the Fed will be bad enough for the Dollar to come down and good enough for the Euro. We think the Fed is not going to be that aggressive and we think that the Euro is going to come back down."

"But the big trades we are talking about right now is, Euro/Dollar is going to test 1.37. If we do break below that, I think we are going to look at 1.30." (Ashraf Laidi on BNN)

Here is analysis on the ECB.

"The European Central Bank, or ECB, is most likely to reverse its recent rate hikes due to weak economic outlook and fading upside risks to price stability, Jennifer McKeown, a senior economist at Capital Economics, said." (INO.com)

"If it remains a market crisis, the ECB may just give banks more liquidity but if it spreads to the real economy, they may even cut rates,” said Chris Scicluna, deputy head of economic research at Daiwa Capital Markets Europe in London." (Bloomberg)

Below I embedded Presiden't Obama's speech on the American Jobs Act. If you can't watch it, I put up the full speech transcript and fact sheet with a table showing where the $447 billion would be allocated.

"THE PRESIDENT: Mr. Speaker, Mr. Vice President, members of Congress, and fellow Americans:

Tonight we meet at an urgent time for our country. We continue to face an economic crisis that has left millions of our neighbors jobless, and a political crisis that’s made things worse.

This past week, reporters have been asking, “What will this speech mean for the President? What will it mean for Congress? How will it affect their polls, and the next election?”

But the millions of Americans who are watching right now, they don’t care about politics. They have real-life concerns. Many have spent months looking for work. Others are doing their best just to scrape by -- giving up nights out with the family to save on gas or make the mortgage; postponing retirement to send a kid to college.

"Basically Bernanke said no QE3. If SPX is down a couple hundred points and financial conditions tightened maybe they would reconsider. There is no logic to QE3 now and the only result might be more food and energy inflation. We're in a difficult investing environment."

Tuesday, September 6, 2011

2-year Greek Government Bonds yield 50% which is a record high. Is it pricing in a default? The cost of insurance on 5Y Greek debt is testing the July highs at 2,500 bps (Greek 5Y CDS). The 10-year U.S. Treasury Note yield is at 1.93% which is a record low. See my previous post on 8/15/2011: "10 Year Treasury Note Yield Near 1941, 2008 Lows (1.95%, 2.04%)". Investors are rushing into Treasury bonds as a safe haven to hedge against recessions and euro-zone default risk, unless there's a war coming somewhere. This UBS report at Zero Hedge probably has the answers: "Bring Out Your Dead - UBS Quantifies Costs Of Euro Break Up, Warns Of Collapse Of Banking System And Civil War". Watch gold and the U.S. Dollar. Is China going to save the euro-zone and European banks?

Monday, September 5, 2011

John Hussman, of Hussman Funds, had an interesting Weekly Market Comment out last week (there's a new one out tonight) that included a range of S&P targets based historical "prospective returns". He also thinks there's a possiblity that the S&P could revert back its secular valuation lows, with the potential of overshooting. He's not alone, Felix Zulauf sees the S&P reverting back to book value. In this case, Hussman values the S&P 500 between 600 and 1000 based on the historical prospective returns listed below; but under extreme secular undervaluation and/or macroeconomic conditions, he thinks the S&P could hit 400!

"Historically, the typical bull-bear market cycle has produced a range of 10-year prospective returns in a band between about 7.5% and 13%. That band presently corresponds to a range for the S&P 500 index between 600 and 1000. A 10% prospective return is right in the middle, at about 800 on the S&P. Once you recognize that profit margins are in fact cyclical, that range is about right, as uncomfortable as it may be to contemplate. Jeremy Grantham of GMO estimates that fair value is "no higher than 950." A tighter norm for prospective return between 9-11% maps to an S&P 500 between 750 and 850.

Finally, while I certainly would not expect it in the absence of extreme macroeconomic upheaval, major secular undervaluation as we observed in 1950, 1974 and 1982 would presently map to about 400 on the S&P 500. When you think of "once in a generation" valuations and "secular bear market lows" - that number, not anything near present levels, should be what crosses your mind. I am well aware that even discussing numbers like these, given the present mindset of investors, is likely to be dismissed as utterly ridiculous. Frankly, I would rather risk the ridicule of those who pay lip-service to research, cash flows, fundamentals, and value than to pretend these outcomes are impossible, when the historical record (and even the experience of the past decade) strongly indicates otherwise." (continue reading at HussmanFunds.com)

"August data pointed to another marginal expansion of Chinese private sector activity, with the headline seasonally adjusted HSBC Composite Output Index recording 50.4. The index was unchanged on July’s 28-month low, and much lower than the long-run trend for the series"

"the agency is so low on cash that it will not be able to make a $5.5 billion payment due this month and may have to shut down entirely this winter unless Congress takes emergency action to stabilize its finances."

ABN Amro Complains About Interbank Liquidity Crunch, As CEO Says End Of Euro Would Make 1930s Seem Like "A Trifle" (Zero Hedge)

"Nonfarm payroll employment was unchanged (0) in August, and the unemployment rate held at 9.1 percent. Employment in most major industries changed little. Health care continued to add jobs; a decline in information employment reflected a strike. Government employment continued to trend down."

Thursday, September 1, 2011

EURUSD is at 1.43125, down 0.38% at 3:25am (eastern). It is continuing its descent from Tuesday after breaking through the initial uptrend line. It is now testing the second one as you can see. To be long EUR/USD I need to see a confirmed breakout above 1.453. Until then, a break below the second trend line (around 1.430) could be a decent short to test the major uptrend line from 2010. There are fears that European banks have to take large writedowns on their holdings of Greek, Italian, Irish, Spanish and Portuguese sovereign debt, and a contagion effect could make it even worse. Read the FT article for details. The ECB and European governments think their estimates are BS since they're not factoring in the rise in German debt. The market will decide... Will China step in here?

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